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SYNOVUS FINANCIAL CORP (SNV)·Q3 2017 Earnings Summary

Executive Summary

  • Diluted EPS was $0.78 and adjusted diluted EPS $0.65, supported by a $75.0M Cabela’s/Capital One transaction fee; adjusted profitability improved year over year while core non-interest income was flat sequentially .
  • Net interest margin expanded to 3.63% (+12 bps q/q, +36 bps y/y) on higher earning asset yields; adjusted efficiency ratio improved to 58.59% from 62.41% y/y .
  • Credit quality optics mixed: NPL ratio fell to 0.40% and NPA ratio to 0.57%, but net charge-offs rose to 0.62% annualized due to loans transferred to held-for-sale tied to balance sheet restructuring actions .
  • Management guided to a ~$25M pre-tax loss on early extinguishment of debt in Q4 and reiterated 2017 outlook ranges; highlighted >5% expected 2018 EPS accretion from restructuring (catalysts: NIM, credit and opex trajectory) .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin and earnings power improved: NIM rose to 3.63% (yield on earning assets 4.11%, loans 4.49%), driving net interest income to $262.6M (+4.6% q/q, +16.2% y/y) .
  • Operating efficiency strengthened: adjusted efficiency ratio improved to 58.59% vs. 59.56% in Q2 and 62.41% in Q3’16; adjusted ROA increased to 1.05% .
  • Credit metrics improved on problem asset reduction: NPL ratio fell to 0.40% and NPA ratio to 0.57% after HFS transfers and ORE dispositions; CEO: “Adjusted earnings per share increased 25% year-over-year…we strengthened our balance sheet…[and] saw the non-performing loan ratio decline 24 basis points to 0.40%” .

What Went Wrong

  • Elevated provision and net charge-offs: Provision expense rose to $39.7M (from $10.3M in Q2) and net charge-offs increased to $38.1M (0.62% annualized), largely due to restructuring-related HFS transfers and accelerated ORE dispositions .
  • Core fees softened: Adjusted non-interest income dipped to $68.4M (-2.3% q/q) with core banking fees down $1.1M sequentially; reported non-interest income included an $8.0M securities loss .
  • Tangible capital ratio ticked down: TCE ratio declined to 8.88% (from 9.15% in Q2) amid $90.6M of share repurchases and balance sheet actions .

Financial Results

MetricQ3 2016Q2 2017Q3 2017
Diluted EPS ($)$0.51 $0.60 $0.78
Adjusted Diluted EPS ($)$0.52 $0.61 $0.65
Total Adjusted Revenues ($MM)$294.7 $321.4 $331.3
Net Interest Income ($MM)$226.0 $251.1 $262.6
Net Interest Margin (%)3.27% 3.51% 3.63%
Total Non-Interest Income ($MM, reported)$68.2 $68.7 $135.4
Adjusted Non-Interest Income ($MM)$68.3 $70.1 $68.4
Provision for Loan Losses ($MM)$5.7 $10.3 $39.7
Efficiency Ratio (%)63.13% 59.90% 50.62%
Adjusted Efficiency Ratio (%)62.41% 59.56% 58.59%

Segment/Portfolio Mix

Loans ($B)Q3 2016Q2 2017Q3 2017
Total Loans$23.26 $24.43 $24.49
Commercial & Industrial$11.02 $11.75 $11.73
Commercial Real Estate (CRE)$7.47 $7.41 $7.23
Consumer$4.81 $5.29 $5.56

Key KPIs

KPIQ3 2016Q2 2017Q3 2017
Total Average Deposits ($B)$24.03 $24.99 $25.29
Average Core Transaction Deposits ($B)$17.36 $18.41 $18.60
NPL Ratio (%)0.64% 0.65% 0.40%
NPA Ratio (%)0.77% 0.73% 0.57%
Net Charge-Off Ratio (annualized, %)0.12% 0.26% 0.62%
CET1 Ratio (fully phased-in, %)9.48% 9.82% 9.87%
Tangible Common Equity Ratio (%)9.28% 9.15% 8.88%

Notes:

  • Reported Q3 non-interest income includes $75.0M Cabela’s/Capital One fee and ($8.0M) securities losses .
  • Adjusted figures exclude specified restructuring and transaction items per the reconciliation .

Guidance Changes

MetricPeriodPrevious Guidance (Q2 2017)Current Guidance (Q3 2017)Change
Average Loan GrowthFY 20175%–7% 5%–7% Maintained
Average Total Deposit GrowthFY 20175%–7% 5%–7% Maintained
Net Interest Income GrowthFY 201712%–14% 12%–14% Maintained
Adjusted Non-Interest Income GrowthFY 20172%–4% 2%–4% Maintained
Total Non-Interest Expense GrowthFY 20172%–4% 2%–4% (excl. restructuring actions) Maintained/clarified
Effective Tax RateFY 201734%–35% 34%–35% Maintained
Net Charge-Off RatioFY 201715–20 bps 15–20 bps excluding HFS transfers Clarified
Share RepurchasesFY 2017Up to $200M Up to $200M; $135.9M YTD Maintained / status update
Loss on Early Debt ExtinguishmentQ4 2017n/a~$25M pre-tax expected New
EPS Accretion from ActionsFY 2018n/a>5% expected from restructuring New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2017)Current Period (Q3 2017)Trend
WFB/Cabela’s transactionAnnounced definitive agreement; $75M consideration expected; retain ~$1.2B brokered time deposits Closed 9/25; retained ~$1.1B brokered time deposits (2.53-year WAM, 1.83% rate, ~14 bps discount); recognized $75.0M fee Executed; liquidity and NIM support
Net Interest Margin3.42% in Q1; NIM up 13 bps q/q 3.63% (+12 bps q/q, +36 bps y/y), earning asset yield 4.11% Improving
EfficiencyAdjusted efficiency ratio 62.25% (Q1) Adjusted 58.59%; reported 50.62% Improving
Credit qualityNPL 0.65% (Q1), 0.65% (Q2) NPL 0.40%; NCO 0.62% due to HFS transfers; NPA 0.57% Underlying improvement; temporary NCO spike
Deposits/core fundingCore transaction deposits $18.15B (Q1), $18.41B (Q2) Core transaction deposits $18.60B; cost of interest-bearing core deposits 0.41% Growing; modest cost pressure
Capital actionsRepurchased $15.1M (Q1), $30.2M (Q2) Repurchased $90.6M; CET1 (fully phased-in) 9.87% Accelerated buybacks; strong CET1

Management Commentary

  • CEO Kessel Stelling: “Adjusted earnings per share increased 25% year-over-year, adjusted return on assets increased to 1.05%, and our efficiency ratio declined to below 59%…we strengthened our balance sheet…we were also pleased to close the Cabela’s transaction…which provided additional liquidity to fund organic growth” .
  • Selected items impacting earnings: net positive pre-tax impact of $27.8M in Q3 from $75.0M transaction fee offset by $27.7M provision on HFS transfers, $7.1M ORE dispositions, $8.0M AFS repositioning and other charges; EPS impact ~$0.13 .
  • 2017 Outlook reiterated excluding transaction and restructuring; cost discipline and NIM expansion targeted, with expected >5% EPS accretion in 2018 from actions .

Q&A Highlights

  • Loan and ORE dispositions: Management outlined the composition and economics of $95.8M assets sold/placed into HFS (34% reduction in NPLs, 23% reduction in NPAs), with $34.8M net cost after reserves; ~$30.2M loans and $8.1M ORE remain to be sold over 3–6 months .
  • Credit metrics normalization: Clarified that excluding charge-offs on loans transferred to HFS, the Q3 NCO ratio would be ~0.06% (YTD ex-HFS 0.15%) consistent with 2017 outlook of 15–20 bps underlying NCOs .
  • Liability management: Announced redemption of $300M 7.875% senior notes (expected ~$25M pre-tax loss in Q4), positioning for lower funding cost and future NIM resilience .
  • Deposit acquisition specifics: Retained ~$1.1B WFB brokered time deposits (2.53-year WAM, 1.83% rate) at a ~14 bps discount to market, supporting funding and balance sheet restructuring .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q3 2017 were unavailable at the time of this analysis due to access limitations; therefore, an explicit beat/miss versus Wall Street was not assessed [GetEstimates error]. Values retrieved from S&P Global were not available.*

Key Takeaways for Investors

  • Core profitability is inflecting positively: NIM expansion, stable funding costs, and improving adjusted efficiency underpin EPS sustainability as one-time items roll off .
  • Credit optics are better than headline NCOs: NPL/NPA ratios improved materially; excluding HFS-related actions, underlying NCOs remain within the 15–20 bps outlook range, easing credit risk concerns .
  • Strategic actions are catalysts: WFB deposits and portfolio repositioning should support 2018 EPS (>5% accretion expected) despite a Q4 debt extinguishment charge .
  • Capital deployment remains shareholder-friendly: CET1 (fully phased-in) at 9.87% with accelerated buybacks ($90.6M in Q3; $135.9M YTD) suggests continued flexibility .
  • Near-term trading lens: Expect Q4 headline EPS drag from the ~$25M loss; focus on NIM trajectory and adjusted opex path to gauge multiple support .
  • Medium-term thesis: Continued core deposit growth, loan mix shift toward consumer/C&I, and disciplined cost structure position SNV to compound ROA/ROE as credit normalizes and brand unification initiatives execute .

Additional sources:

  • Company press release page confirming Q3 2017 release and call timing .
  • External transcript availability references (for completeness; primary synthesis based on company filings and exhibits) .